The economic effects of owner distance and local property management in US office markets

Author

Abstract

This paper is one of the first empirical studies to investigate the role of owner proximity or distance on the performance of commercial real estate and it is the first to analyze the economic benefits of property management in that regard. Using a large dataset of U.S. offices we analyze the relationship between investor distance to their assets and the effective rent of these assets, and study the extent to which property managers can influence this relation. We construct propensity score weighted hedonic rent models to control for other known rent determinants. It turns out that proximity matters: holding everything else constant, investors located closely to their office properties are able to extract significantly higher rents from these assets, especially if these buildings are of low quality. Interestingly, property managers can affect this relation, mitigating the adverse effects of investor distance on effective office rents. Especially if the property owner does not reside in the same state as the building, external property management is of importance, most prominently so for class-B office buildings.